Small biz warns on contractor law

Recovery threatened by red tape

The British Chamber of Commerce has written to Lord Mandelson, asking him to delay changes to temporary workers' rights which they fear will cost the UK economy as much as £1.5bn a year.

The Agency Workers Directive is EU legislation which seeks to improve rights for temporary staff. The law aims to give temps equivalent rights to permanent staff. The government has already agreed that these rights should not start from the first day of employment, as in many other countries, but come into effect after 12 weeks of employment.

David Frost, director general of the British Chambers of Commerce, said: "1 in 4 businesses in the UK use agency workers, rising to 1 in 2 for the largest companies, so implementation of the Directive will clearly have a big financial impact. It is imperative that implementation is delayed until the last possible common commencement date, October 2011. Implementing earlier risks crippling the agency sector, hampering job creation, and stifling economic growth."

The lobby group also has concerns about the "hypothetical comparator" - a way for agency staff to compare their pay and benefits with a permanent employee doing a similar job.

Although the law aims to help out vulnerable workers on, or near, the minimum wage, it will also have a big impact on IT contractors employed through an agency. Such staff are often paid better than permanent employees in order to compensate them for reduced benefits in terms of holidays, sick pay and pensions.

But if companies are obliged to offer temporary staff similar benefits, they are unlikely to also pay contractors more. Alternatively, the new legislation may see a lot more people placed on rolling 12 week contracts, so that they are not included in the changes.

The consultation period is now closed and Mandy's Department of Business, Innovation and Skills will consider exactly how to implement the changes into UK law.